June 14th, 2021 | Sterling

Q&A with Jill Zientarski of Workery Consulting: Direct-hire vs. Independent Contractors

It’s not breaking news that Covid-19 has changed the world of work across all industries. From people losing their jobs, to choosing to find independent work with more flexibility to allow for easier work/life balance, a shift in the values placed on work vs. family, and remote work being something of the new norm, companies have been forced to look in the mirror. They are assessing what they need in terms of full-time employees vs. independent contractors, where they can be agile to keep their employees happy, how to keep trust and safety at the forefront, and steps to maintain a healthy company culture. What this means for each company will be different.

The Status of Independent Contractors

Even before the pandemic, there was growth of independent workers in the US labor force; around 34% of the workforce was involved in the gig economy. And, at the current rate of growth in the gig economy, more than 50% of the US workforce will participate in it by 2027. Looking to the future, it will become increasingly important for companies to assess the importance of direct hires vs. independent contractors and what that means for their business model, company culture, finances, and more.

There is legal guidance to making these determinations. A company must weigh various factors to identify the degree of control it has in the relationship with a person. For example, in February of this year, the UK Supreme Court ruled that Uber drivers are not self-employed and that they are entitled to worker benefits. Generally, according to the IRS, companies must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. They do not generally have to withhold or pay any taxes on payments to independent contractors.

The Role of the Background Check

Regardless of how businesses choose to operate, a robust background check program is an important step in protecting key business assets — your employees, your customers, and your reputation. Independent contractors may require a distinct background screening process, depending on what they’ll be involved with. It’s important to remember that regardless of the type of employee you’re running a background check on, a smooth candidate experience will go a long way for both you and them.

The Q&A

To get a unique perspective on this topic, we interviewed Jill Zientarski, Founder of Workery Consulting, a boutique HR consulting firm that provides HR and organizational tools to clients to build engaged workforces and increased profitability. Because of her experience in the HR space and with various types of clients, we asked Jill to tell us what she’s seeing with direct hires vs. independent contractors.

What guidance do you provide to your clients on determining the threshold for independent contractor vs. direct-hire employee?

Many of my clients don’t realize there are laws on what classifies a position as a contractor vs. direct-hire, so quite often I begin working with an organization and as we dig in, we find that there’s a large disconnect in how people are being paid compared to how they legally should be paid.

The most common misconception is that you can pay an employee as a contractor if that individual is fine with it — and sometimes companies are finding that people actually prefer that, but it’s not just a matter of payment. It also has to do with the type of work being done, how close to key operations the position is, and what level of direction is given to them in how they should be completing their responsibilities.

It’s important to look at the independent contractor vs. direct-hire situation based on the position itself and not the person because it helps eliminate any personal preference and focuses on the specific responsibilities of the role. First, organizations should have an updated job description or list of responsibilities for each position, and from those it can be determined what level of control and direction the company gives in how the work is completed. If it’s controlled mostly by the individual, they may be considered an independent contractor. Second, if an individual has made a significant investment into their own business of the same nature as their role (i.e., training, licensing, tools, etc.) that may also qualify them to be a contractor. However, if the company is providing other benefits such as PTO or health insurance, those complicate the relationship as they’re typically given to only direct-hires. Ultimately, there’s no clear-cut path but organizations should look at the relationship overall and can work with a human resources professional to determine which classification is correct.

What trends are you seeing with the hiring of contractors and direct-hire employees, and the shift of contractor to employee?

Covid has been the biggest disrupter to the way we work in our lifetime. Not only did we see the world essentially shut down, but it’s changed the way that people want to work, what’s important to them (it’s not always just about money), and what we value in an employer/employee relationship.

I recently read an article that discussed how millions of people have started their own businesses or have become independent contractors since the pandemic began. Some of those were a result of losing their job, but many were because of the need for more flexibility due to family obligations or the trend of being able to work remotely to allow for travel. The quest for remote work was increasing with millennials prior to the pandemic, and it’s continuing as we return to “normal” life.

From the company perspective, we’re seeing a shift to accommodate this new way of working — more remote opportunities (even if it’s only 2-3 days a week) and more flexible schedules to accommodate personal life such as childcare. My prediction is that these flexibilities are here to stay. The emotional strain and burnout from the events of the last year has caused a shift in what we value in life and the ability to work for oneself is more enticing than ever. Because of this, companies are having a more difficult time filling positions and it’s resulting in a shift to more contract work.

How can organizations be confident in the background screening and ongoing monitoring processes for their independent contractors?

Organizations should absolutely background check their contractors during the agreement process, particularly if they have access to confidential client or employee information. It’s also a great idea to add in ongoing background checks to the agreement during the negotiation process to protect the company and ensure they’ll be notified should any issues arise throughout the relationship.

It’s also recommended to vet out potential contractors in other ways, similar to how you would with a candidate you’d be looking to hire directly. Ask for references, request examples of previous work, check reviews on them, and review their website and any licensing, etc., that may be applicable. With the influx of new contractors as a result of the pandemic, it’s key to make sure a contractor is reputable and qualified for the position.

How can organizations build a great company culture that includes independent contractors?

The main component to a great company culture that includes independent contractors is one that has open communication. It’s no different than the type of environment a direct-hire employee wants to work in; everyone wants to feel that they understand their role within the organization and to know the whys behind decision-making. It’s also one that is inclusive and promotes collaboration between departments and between independent contractors and direct-hires so that information is shared in a way that allows everyone involved access to the resources they need to be successful.

As someone who works as an independent contractor for businesses myself, the projects I struggle with the most are ones where information is siloed within the organization and I’m unable to have access to the key individuals with whom I need to work. I still complete the work and am confident that meets or exceeds expectations, but the process is more difficult, typically takes longer, and may not have as great as impact as it could if information were to flow freely with a more communicative culture.

In your opinion, what are some common mistakes companies make when finding, hiring, and onboarding contractors?

The two biggest mistakes I see when hiring contractors are not clearly defining the role that needs to be filled and not vetting out potential contractors before hiring them. The first issue is typically because the organization hasn’t done the work to determine what is actually needed, so they end up searching for the wrong thing or hire a contractor to spend time on a project that isn’t focused in the right area. This can be avoided by having open communication within the organization and having a true understanding of what the work entails, and the position requires. The second mistake is what I mentioned earlier — failing to do their due diligence with vetting out a contractor’s experience, reputation, and background check. It protects the organization and its clients and leads to a smoother and more successful relationship overall.

Q&A Blog Series

This blog post is part of a Q&A blog series, where we interview industry experts to get their insights on the latest trends, best practices, and recommendations for building great cultures and foundations of trust and safety.

Sterling is not a law firm. This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.